TaxTMI Updates e-Newsletter
Nov 14,2016

Penalty for furnishing inaccurate particulars of income - penalty under section 271(1)(c) of the Act - application of DTAA Article 7(3) to computation of profits of a permanent establishment - double deduction - claim of capital expenditure together with depreciation - bona fide belief as a defence to invocation of penalty - separation of assessment and penalty proceedings

Double deduction - claim of capital expenditure together with depreciation - penalty for furnishing inaccurate particulars of income - Levy of penalty under section 271(1)(c) for claiming capital expenditure as revenue expenditure while also claiming depreciation (double deduction). - HELD THAT: - The Tribunal held that the assessee acquired capital assets, claimed the full cost as an allowable revenue deduction and also claimed depreciation, thereby effectively seeking double deduction. Penalty under section 271(1)(c) is a civil remedy aimed at loss of revenue and does not require proof of mens rea; the determinative inquiry is whether the explanation offered during penalty proceedings was bona fide and could be substantiated. The Tribunal found that the assessee did not produce judicial authority, expert opinion or any legally tenable basis to show that capital expenditure could be treated as revenue expenditure while also claiming depreciation. The claim was characterised as a fanciful interpretation of the DTAA, unsupported by authority or accounting principles, and thus amounted to furnishing inaccurate particulars. On these facts the imposition of penalty was upheld.

Penalty under section 271(1)(c) upheld for the years in issue.

Application of DTAA Article 7(3) to computation of profits of a permanent establishment - bona fide belief as a defence to invocation of penalty - Whether Article 7(3) of the Indo-Mauritius DTAA permits deduction of capital expenditure contrary to domestic law and whether reliance on Article 7(3) established a bona fide, debatable position avoiding penalty. - HELD THAT: - The Tribunal analysed the assessee's contention that Article 7(3) required computation of PE profits by deducting all expenses, including capital expenditure, and that treaty provisions override domestic law. It rejected this interpretation, noting that Article 3(2) (reflecting OECD/UN models) requires that terms be understood in harmony with domestic law and that treaty computation is subject to domestic limitations unless the treaty expressly provides otherwise. The Tribunal observed that the assessee failed to show any express contrary provision in the treaty or any authoritative precedent to support its expansive reading. Given the absence of conflicting jurisprudence or expert/legal opinion, the Tribunal concluded that the assessee's view was not a reasonably arguable or bona fide interpretation capable of negating penalty; domestic restrictions on deductibility therefore applied.

Assessee's reliance on Article 7(3) as entitling deduction of capital expenditure was rejected; the treaty did not displace domestic limitations on deductibility in the facts of this case.

Separation of assessment and penalty proceedings - penalty for furnishing inaccurate particulars of income - Whether confirmation of additions in assessment proceedings precludes imposition of penalty or whether penalty must be judged independently on the explanation offered in penalty proceedings. - HELD THAT: - The Tribunal reaffirmed that assessment and penalty proceedings are separate and independent. Confirmation of assessment additions in earlier proceedings has no automatic bearing on the validity of penalty; the decision to impose penalty must rest on the explanation tendered during penalty proceedings and whether that explanation is bona fide and substantiated. On the facts, even allowing that quantum appeals were decided against the assessee, the Tribunal found the penalty decision to be justified because the assessee's explanation in the penalty proceedings lacked supporting authority or evidence.

Assessment outcomes do not immunise an assessee from penalty; penalty sustained based on independent appraisal of the explanation.

Final Conclusion: The Tribunal dismissed the appeals and upheld the penalty orders for AYs 2000-01, 2001-02, 2002-03 and 2004-05, holding that the assessee's claim of deducting capital expenditure together with depreciation was not bona fide or legally tenable and amounted to furnishing inaccurate particulars of income.

Extension of stay of recovery - stay once granted by assessing officer - prima facie case and balance of convenience - requirement to approach higher tax authorities before Tribunal - disallowance under section 14A (prima facie consideration)

Extension of stay of recovery - stay once granted by assessing officer - natural justice and fair play - Tribunal's power to extend stay where the Assessing Officer had earlier granted stay and refused extension without assigning reasons though facts remained unchanged - HELD THAT: - The Tribunal found that the AO had earlier granted a stay of recovery subject to payment of 10% and a six month period, which the assessee complied with. The AO refused extension of that stay without assigning reasons despite the assessee showing that facts and circumstances remained unchanged and delay in disposal was not attributable to the assessee. Relying on principles of natural justice and the Bombay High Court's approach in the assessee's earlier matter, the Tribunal held that refusal to extend the stay in those circumstances was unjustified. The Tribunal noted that the stay previously granted by the AO should have been extended where conditions and facts remained the same and that arbitrary variation of stay terms is unsustainable. Applying these conclusions, the Tribunal granted extension of the stay for six months or till disposal of the appeal, whichever is earlier, while clarifying that the stay would not affect the merits of the assessment. [Paras 6, 7, 8, 9, 11]

Refusal by AO to extend the stay was unjustified; stay of recovery extended for six months or till disposal of the appeal, whichever is earlier

Prima facie case and balance of convenience - disallowance under section 14A (prima facie consideration) - Whether on the prima facie materials the balance of convenience favoured grant of stay because the major addition related to disallowance under section 14A - HELD THAT: - The Tribunal observed that the primary addition was on account of disallowance under section 14A and that the assessee produced materials indicating investments were strategic and funded by rights issues, share swaps and internal accruals. While the Tribunal did not decide the substantive correctness of the section 14A disallowance, it accepted that on the prima facie view and in light of authorities cited, deletion of the disallowance could convert the taxable income into a loss and eliminate the demand. Therefore, the prima facie case and the balance of convenience lay in favour of the assessee, supporting the grant of stay. [Paras 3, 9]

Prima facie case and balance of convenience found in favour of the assessee regarding the section 14A disallowance; this supported grant of stay (without adjudicating merits)

Requirement to approach higher tax authorities before Tribunal - directory not mandatory - Whether it was mandatory for the assessee to first approach the Principal Commissioner (CIT) for extension of stay before approaching the Tribunal - HELD THAT: - The Tribunal considered precedents holding that seeking stay before higher tax authorities is directory and not mandatory. Given the short timeline imposed by the AO for payment of the balance demand and the risk of coercive measures, the Tribunal held that the assessee was not obliged as a matter of law to exhaust the remedy before the Principal Commissioner before approaching the Tribunal, and the Tribunal could intervene directly when circumstances warranted urgent relief. [Paras 10]

No mandatory requirement to approach the Principal Commissioner before seeking stay from the Tribunal; Tribunal may intervene directly where circumstances justify

Final Conclusion: The Tribunal allowed the stay petition: it held the AO's refusal to extend a previously granted stay (without reasons and where facts remained unchanged) unlawful, found a prima facie case and balance of convenience favouring the assessee with respect to the major section 14A disallowance, and confirmed that approaching higher tax authorities first is directory not mandatory; stay extended for six months or until disposal of the appeal, whichever is earlier.

Long term capital gains versus income from undisclosed sources - addition on account of unexplained commission under section 69C - reopening of assessment and reason to believe for invoking section 147 - evidentiary role of purchase and sale documents for establishing genuineness of capital transaction

Long term capital gains versus income from undisclosed sources - evidentiary role of purchase and sale documents for establishing genuineness of capital transaction - Whether the gain of Rs. 6,94,327 on sale of shares is to be assessed as long term capital gain or treated as income from undisclosed sources. - HELD THAT: - The Tribunal found on the record that the assessee purchased 9,500 shares of Talent Infoway Ltd. on 04.03.2003 for the consideration evidenced by a bill/contract note and sold them on 20.03.2004 and 26.03.2004 for the consideration not disputed by the Revenue. Once the dates and sources of purchase and the dates and sale consideration were not in dispute and documentary evidence of purchase and sale stood on record, the transaction prima facie constituted a genuine capital transaction. The authorities below treated the declared long term capital gain as undisclosed income relying on information from investigation and third party statements, but failed to rebut the contemporaneous documentary proof of purchase and sale. Applying these facts, the Tribunal held that the amount ought to be assessed under the head long term capital gain and not as income from undisclosed sources, and therefore deleted the impugned treatment by the AO and the CIT(A). [Paras 4]

Gain of Rs. 6,94,327 is to be assessed as long term capital gain and not as income from undisclosed sources; finding of the authorities below to the contrary is deleted.

Addition on account of unexplained commission under section 69C - reopening of assessment and reason to believe for invoking section 147 - Whether the addition under section 69C of Rs. 8,679 as alleged commission is sustainable. - HELD THAT: - The disputed addition under section 69C was directly connected to the characterization of the sale proceeds as undisclosed income. Having held that the sale produced bona fide long term capital gain on the basis of undisputed purchase and sale documentation, the Tribunal found no basis for the addition of alleged commission. Consequently, the addition under section 69C was deleted. The Tribunal noted that the question on validity of reopening under section 147 became academic in view of the favourable substantive finding on merits. [Paras 4, 5]

Addition of Rs. 8,679 under section 69C is deleted.

Final Conclusion: The appeal is allowed: the declared gain on sale of shares for A.Y. 2004-05 is to be assessed as long term capital gain and the related addition under section 69C is deleted; the question on reopening under section 147 is rendered academic by the merits decision.

Penalty under Section 271(1)(c) for concealment or furnishing inaccurate particulars - principles of natural justice - opportunity of hearing before confirming penalty - dismissal of appeal in limine - remand for fresh consideration

Penalty under Section 271(1)(c) for concealment or furnishing inaccurate particulars - opportunity of hearing before confirming penalty - principles of natural justice - remand for fresh consideration - Whether the order of the CIT(A) confirming the penalty should be sustained without giving the assessee an opportunity of hearing, and what relief is appropriate. - HELD THAT: - The Tribunal observed that the CIT(A) confirmed the penalty levied by the Assessing Officer without affording the assessee adequate opportunity to be heard on the penalty proceedings. The Tribunal recorded that confirming a penalty in such circumstances would be inconsistent with the principles of natural justice. Rather than deciding the merits of the penalty, the Tribunal directed that the matter be remitted to the file of the CIT(A) so that the assessee may be given adequate opportunity and the CIT(A) may thereafter pass an appropriate order in accordance with law. No substantive adjudication on the correctness of the penalty on merits was undertaken by the Tribunal; the relief granted is procedural and limited to remand for fresh consideration after giving opportunity.

The order of the CIT(A) confirming the penalty is set aside to the extent that the matter is remitted to the CIT(A) for fresh consideration after affording the assessee adequate opportunity; the appeal is allowed for statistical purposes.

Final Conclusion: The Tribunal remitted the matter to the CIT(A) for fresh adjudication on the penalty after giving the assessee adequate opportunity of hearing; no decision was recorded on the merits of the penalty and the appeal is disposed of for statistical purposes.

Estimation of income by reference to previous year's gross profit - Burden on Assessing Officer to point out defects before rejecting books of account - Books of account audited under section 44AB - Rejection of books of account as prerequisite to making best judgment estimation - Variation in gross profit due to foreign exchange fluctuation and high-seas sales

Estimation of income by reference to previous year's gross profit - Burden on Assessing Officer to point out defects before rejecting books of account - Books of account audited under section 44AB - Variation in gross profit due to foreign exchange fluctuation and high-seas sales - Deletion of addition made by AO on account of low gross profit - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the AO's addition on account of low gross profit. The AO had estimated gross profit at the rate of the immediately preceding year after allowing a 50% reduction for recession, but did not point out any defect in or reject the assessee's audited books of account. The CIT(A) found the assessee's explanations acceptable: the line of business showed wide year-to-year variation in gross profit; there were high-seas sales in the year under consideration earning only about 2% GP; and a substantial foreign exchange fluctuation loss materially affected profitability. In these circumstances, and in the absence of any specific defects in the books or comparable market evidence relied upon by the AO, the AO was not justified in disregarding the profit declared in the regular books and making an estimated addition. The Tribunal concurred with the CIT(A)'s factual findings and legal conclusion that the AO could not make the estimation without first rejecting the books or recording specific defects, and therefore the addition was deleted. [Paras 3]

The addition of Rs. 1,56,28,960/- (on account of low GP) made by the AO is deleted; Revenue's ground is dismissed.

Final Conclusion: Revenue's appeal for A.Y. 2009-10 is dismissed and the CIT(A)'s deletion of the addition on account of low gross profit is upheld.

Long term capital gains - bogus share transactions - dematerialization and seized documentary evidence - admissibility and weight of broker confirmation/affidavit as evidence - penalty under 271(1)(c) of the I.T. Act

Long term capital gains - bogus share transactions - dematerialization and seized documentary evidence - admissibility and weight of broker confirmation/affidavit as evidence - Deletion of addition assessing long term capital gain as income from undisclosed sources and deletion of estimated commission/expenses added by the AO. - HELD THAT: - The Tribunal and this Bench accepted the factual matrix that sale of shares was evidenced by dematerialization, sale through de-mat account and account-payee cheque receipts seized during search, and that the genuineness of the shares was not doubted. The assessing officer was directed to verify purchase entries from the broker but the broker did not co operate and claimed records were destroyed; the assessee produced a confirmation/ledger extract and an affidavit from a director of the broking firm. The AO rejected the affidavit on the ground of the director's tenure dates, and took an adverse view without producing material contradicting the seized documentary evidence. Having examined the Tribunal's earlier directions, the nature of the seized evidence, the non cooperation of the broker and the affidavit/confirmation placed by the assessee, the Bench held that the AO was not justified in sustaining the addition or the ad hoc 5% expense addition. The CIT(A)'s deletion of the additions was therefore upheld. [Paras 14]

Addition of long term capital gain assessed as undisclosed income and the estimated commission addition were deleted; the CIT(A)'s order in this regard is upheld.

Penalty under 271(1)(c) of the I.T. Act - consequence of deletion of additions on penalty - Validity of cancellation of penalty imposed under section 271(1)(c). - HELD THAT: - Since the additions made by the AO were deleted on the merits for reasons recorded by the Commissioner (Appeals) and upheld by this Bench, the Tribunal found that cancellation of penalty was based on correct reasoning. There was no ground shown to sustain the penalty once the foundational additions were set aside. [Paras 15]

Penalty levied under section 271(1)(c) was cancelled by the CIT(A) and that order is upheld.

Final Conclusion: Both appeals filed by the Revenue are dismissed: the additions assessing long term capital gain and estimated commission are deleted and the penalty under section 271(1)(c) stands cancelled.

Revisional jurisdiction under Section 263 - prejudicial to the interest of revenue - duty of the Assessing Officer to make enquiries - mercantile system of accounting - ascertainability / crystallisation of estimated future expenses - tax under book profit provisions (Section 115JB)

Duty of the Assessing Officer to make enquiries - revisional jurisdiction under Section 263 - Whether the Assessing Officer made necessary enquiries into the claimed future development expenses at the time of assessment - HELD THAT: - The Tribunal found from assessment records that the Assessing Officer did not verify the documents and contracts underpinning the assessee's claim of future development expenses. Relying on precedent that an assessing officer must investigate returns that reasonably call for further inquiry, the Tribunal held that failure to make such enquiries renders the assessment order erroneous within the meaning of revisional jurisdiction. The Tribunal recorded that absence of verification of the estimated future costs justified exercise of powers under Section 263. [Paras 7]

Assessing Officer had not conducted the necessary enquiries; this failure rendered the assessment order erroneous for purposes of Section 263.

Ascertainability / crystallisation of estimated future expenses - mercantile system of accounting - Whether the 'future development expenses' claimed by the assessee were crystallised and thus allowable in the year under consideration - HELD THAT: - The Tribunal accepted that the assessee estimated the future development costs by reference to work orders, purchase orders and contracts and that the methodology of estimation was acceptable. However, it found that these expenses remained estimates and were not crystallised at the time of finalisation of the books for the relevant year. Although the agreements/contracts were made in the year under consideration and costs were ascertainable by estimation, the lack of AO's verification of those agreements meant that the question of their crystallisation remained unexamined. [Paras 7]

The claimed future development expenses were estimated and not shown to be crystallised for the year; AO did not verify the supporting contracts.

Prejudicial to the interest of revenue - revisional jurisdiction under Section 263 - tax under book profit provisions (Section 115JB) - Whether the assessment order was prejudicial to the interest of revenue and whether the revisional order under Section 263 was justified despite tax having been paid under book profit provisions - HELD THAT: - The Tribunal considered the assessee's submission that even if future development expenses were disallowed the tax under Section 115JB would still exceed tax under normal computation, and thus no revenue loss would follow. The Tribunal rejected this contention, observing that the absence of necessary inquiries by the AO rendered the assessment order erroneous and, on authority, such error permits revision under Section 263 irrespective of the fact that tax under book profit provisions had been paid. Applying these principles, the Tribunal found both requisites of Section 263-error in the assessment order and prejudice to revenue-satisfied in the circumstances and declined to interfere with the CIT's revisional order. [Paras 7, 8]

The assessment order was both erroneous and prejudicial to the interest of revenue; the revisional order under Section 263 was upheld.

Final Conclusion: The Tribunal dismissed the assessee's appeal and upheld the CIT's order under Section 263: the AO failed to verify estimated 'future development expenses', those expenses were not shown to be crystallised for the year, and on that basis the revisional jurisdiction was validly exercised.

Burden of proof on assessee to explain credits in a discovered bank account - Unexplained income-treatment of undisclosed bank credits - Verification of books and 'Personal P & L Account' for undisclosed transactions - Determination of assessable income by reassessment of undisclosed bank account - Addition of unexplained capital-consequence of non disclosure and consideration under sections 69/69A

Burden of proof on assessee to explain credits in a discovered bank account - Unexplained income-treatment of undisclosed bank credits - Verification of books and 'Personal P & L Account' for undisclosed transactions - Whether the credits in the undisclosed ICICI bank account could be treated as the assessee's unexplained income without further verification - HELD THAT: - The Tribunal held that the initial burden to explain the nature and source of credits in a discovered bank account rests on the assessee. However, on the material placed before it - including a 'Personal P & L Account', copies of purchase and sale bills, courier receipts and evidence of payments reflected in suppliers' books - the assessee had adduced sufficient evidence to require verification rather than immediate confirmation of the entire credit as unexplained income. The Tribunal noted possibilities that some credits could represent direct incomes (rent, interest, professional fees) or that withdrawals might be for non business or personal purposes; it observed inconsistencies such as undisclosed turnover exceeding total bank credits and higher indirect expenses in the Personal P & L Account. Given these factual complexities, the Tribunal refrained from making a final finding on the entire credit and directed the Assessing Officer to re examine the account, verify the Personal P & L and supporting documents, and determine what portion, if any, is properly assessable as income. [Paras 4]

The matter is not finally decided on merits; the AO is directed to re do the assessment with reference to the undisclosed bank account and determine the amount properly assessable as income after verification.

Determination of assessable income by reassessment of undisclosed bank account - Addition of unexplained capital-consequence of non disclosure and consideration under sections 69/69A - Whether additional capital arising from the undisclosed bank account should be examined and treated as unexplained investment requiring additions under sections 69/69A - HELD THAT: - The Tribunal directed the AO to cause the assessee to compile a consolidated balance sheet incorporating the previously undisclosed bank account. Comparison of this consolidated balance sheet with the furnished balance sheet would reveal any additional capital attributable to the undisclosed transactions. To the extent such additional capital remains unexplained, it would merit addition under the statutory provisions relating to unexplained investments/capital. The Tribunal emphasised that this exercise is a factual verification necessitated by the non disclosure and does not exceed its jurisdiction; the AO must act reasonably and may take guidance from findings in other assessment years if they are on record and based on definite examination. [Paras 4]

AO to compile consolidated balance sheet including the undisclosed account, ascertain additional capital and, if unexplained, make appropriate additions under sections 69/69A; assessment to be redone accordingly.

Final Conclusion: Assessee's appeal is allowed for statistical purposes and the matter is remitted to the Assessing Officer to re examine the undisclosed ICICI bank account, verify the Personal P & L Account and supporting documents, compile a consolidated balance sheet to ascertain unexplained capital, and determine the amount properly assessable as income (and any additions under sections 69/69A) accordingly.

Revisionary powers under section 263 - assessment erroneous and prejudicial to the interest of revenue - application of mind by the Assessing Officer - disallowance under section 14A read with Rule 8D - presumption that investments are out of own funds

Revisionary powers under section 263 - assessment erroneous and prejudicial to the interest of revenue - application of mind by the Assessing Officer - Validity of the CIT's exercise of revisionary jurisdiction under section 263 in setting aside the assessment order dated 21-12-2011 - HELD THAT: - The Tribunal held that invocation of section 263 was not warranted because the Assessing Officer had taken a plausible and possible view after considering the assessee's written submissions, bank statements and bifurcated profit centre accounts during the course of assessment under section 143(3). The AO applied his mind and made a considered disallowance under Rule 8D(2)(iii) while accepting the assessee's explanation on non-utilisation of borrowed funds for investments; there was no material on record to rebut the presumption that investments were out of own funds. In these circumstances the assessment could not be characterised as 'erroneous' and 'prejudicial to the revenue' so as to justify the extraordinary step of revision under section 263. The Tribunal therefore quashed the CIT's revisionary order directing de novo assessment. [Paras 7, 8]

Revisionary order dated 28-03-2014 passed under section 263 quashed and appeal allowed.

Disallowance under section 14A read with Rule 8D - presumption that investments are out of own funds - Correctness of the AO's treatment of disallowance under section 14A read with Rule 8D and the relevance of the presumption of investment from own funds - HELD THAT: - On the materials placed before the AO - audited financial statements showing own funds substantially in excess of investments, segregated accounts for Head Office and factory, bank statements and working papers - the AO's conclusion to make a limited disallowance under Rule 8D(2)(iii) while not making interest disallowance under clauses (i)/(ii) was a plausible view. The Tribunal relied on the principle that, absent cogent evidence to the contrary, the presumption applies that investments were made from own funds where own funds exceed investments, and observed that the Revenue failed to rebut that presumption. Given these facts and the appellate disposal in favour of the assessee, the AO's approach could not be treated as erroneous prejudicial to revenue. [Paras 7]

AO's treatment of disallowance under section 14A read with Rule 8D upheld as a plausible view; additions deleted on appeal and not open to be upset by revision under section 263.

Revisionary powers under section 263 - Permissibility of issuing a section 263 notice after the appellate order which had adjudicated the same controversy - HELD THAT: - The Tribunal noted that the Revenue issued the section 263 notice after the appellate order which had already considered and deleted the additions made under section 14A read with Rule 8D. Where the same issue has been adjudicated in appeal in favour of the assessee, invoking section 263 to re-open the identical controversy is not permissible in the facts of this case. [Paras 7]

Issuance of section 263 notice post appellate order on the same issue was not sustainable.

Final Conclusion: The Tribunal quashed the CIT's revisionary order dated 28-03-2014 under section 263, upheld the Assessing Officer's plausible view on disallowance under section 14A read with Rule 8D in the circumstances, and allowed the assessee's appeal for assessment year 2009-10.

Capital expenditure versus revenue expenditure - Deductibility of consultancy charges as revenue expenditure - Obligation to deduct tax at source only where recipient's income is chargeable to tax in India - Characterisation of payments to non-residents as fee for technical services - Permanent establishment and source of income in determining taxability of cross-border payments

Capital expenditure versus revenue expenditure - Deductibility of consultancy charges as revenue expenditure - Feng Shui consultancy charges of Rs. 43,05,087 treated as revenue expenditure and allowed as deductible. - HELD THAT: - The Assessing Officer treated the payments as capital expenditure on the ground that they related to layout and location of fixed assets and conferred an enduring benefit. The First Appellate Authority found objectively that the payments were consultancy fees incurred for re-allocation/re-adjustment of furniture and other items and did not bring into existence any new asset. The Tribunal, applying the factual finding of the FAA and following the Tribunal decision in Estel Technologies Pvt. Ltd. , held that the expenditure did not create or acquire a capital asset and was therefore revenue in nature. The FAA's conclusion that the payments were consultancy in nature and not capital outlay was upheld as not suffering from legal infirmity. [Paras 5]

Order of the FAA allowing the expenditure as revenue expenditure is confirmed; first ground decided against the Assessing Officer.

Obligation to deduct tax at source only where recipient's income is chargeable to tax in India - Characterisation of payments to non-residents as fee for technical services - Permanent establishment and source of income in determining taxability of cross-border payments - Disallowance under the Act for failure to deduct tax at source on payments to non-residents was deleted because the payments were not chargeable to tax in India as fees for technical services and recipients had no PE in India. - HELD THAT: - The AO disallowed amounts under the provision relating to tax deduction at source on the basis that payments were to non-residents and represented fees for technical services. The FAA examined invoices and material and concluded that the payments were for production/job-work carried out outside India, did not involve technical services, royalties or the making available of technical know-how, and that recipients had no permanent establishment in India. The FAA applied the principle that the obligation to deduct tax at source arises only if the payment is chargeable under the Act (having regard to source/Permanent Establishment rules). The Tribunal, following the reasoning in GE India Technology and the Tribunal decision in IMG Media Ltd. on closely analogous facts, agreed that the payments were not taxable in India as fees for technical services and consequently the TDS provisions were not attracted. The factual findings that the services were rendered outside India and no PE existed were accepted and the FAA's deletion of the disallowance was upheld. [Paras 7, 9]

Order of the FAA deleting the disallowance under the tax-deduction provision is confirmed; second ground decided against the Assessing Officer.

Final Conclusion: Both impugned additions made by the Assessing Officer-(i) treating Feng Shui consultancy charges as capital and (ii) disallowance for failure to deduct tax at source on payments to non-residents-are set aside; the First Appellate Authority's orders are upheld and the departmental appeal is dismissed.

Cenvat credit on input services - Housekeeping service as service "used in or in relation to" manufacture - Statutory requirement under the Factories Act, 1948 - Admissibility of credit where service is essential for manufacturing operations - Cenvat Credit Rules, 2004 - interest and penalty under Rule 14 and Rule 15

Housekeeping service as service "used in or in relation to" manufacture - Statutory requirement under the Factories Act, 1948 - Cenvat credit on input services - Admissibility of Cenvat credit on housekeeping services availed by the manufacturer for the period Oct.2010 to June.2011 - HELD THAT: - The Tribunal held that housekeeping services were indisputably used to keep the factory premises, including the production area and quality control laboratory, neat and clean; such cleanliness is a statutory requirement under the Factories Act, 1948, and is integral to manufacturing operations. The court reasoned that without compliance with the statutory provisions and maintenance of a clean factory, manufacturing efficiency, machinery performance and workplace safety would be adversely affected, thereby establishing a direct relation of the housekeeping service to the manufacture of the final product. For these reasons the housekeeping service qualifies as an input service eligible for Cenvat credit. The appeals relating to other services (rent-a-cab and outdoor catering) were not contested and rejected as not pressed.

Appeal E/40741/13 allowing Cenvat credit on housekeeping services; appeals E/41697/13 and E/41698/13 rejected as not pressed.

Final Conclusion: The Tribunal allowed the appeal concerning denial of Cenvat credit on housekeeping services for the specified dispute period, holding such services to be used in relation to manufacture and eligible for credit; the other two appeals were not pressed and dismissed accordingly.

Cenvat credit on Group Medical Insurance relating to working group - Cenvat credit on supply of manpower services - Cenvat credit on Transit Insurance and Outward Freight - limited remand for readjudication following ratio in earlier Tribunal decision - reasonable opportunity of hearing on remanded issues

Cenvat credit on Group Medical Insurance relating to working group - Allowability of Cenvat credit of service tax paid on Group Medical Insurance for employees - HELD THAT: - The Tribunal found no evidence that the Group Medical Insurance did not relate to the working group. The cost of such insurance is considered in the cost of manufacturing. On this basis the learned Commissioner (Appeals) was correct in allowing Cenvat credit in respect of Group Medical Insurance.

Allowance of Cenvat credit on Group Medical Insurance affirmed and the revenue appeal on this count dismissed.

Cenvat credit on supply of manpower services - Allowability of Cenvat credit of service tax paid on supply of manpower services - HELD THAT: - There was no contrary finding by the Commissioner (Appeals) that the manpower was not used in manufacture. In the absence of any such adverse finding, the Tribunal declined to disturb the Commissioner (Appeals)'s order allowing credit on this count.

Allowance of Cenvat credit on manpower supply services upheld and the revenue appeal on this count dismissed.

Cenvat credit on Transit Insurance and Outward Freight - limited remand for readjudication following ratio in earlier Tribunal decision - reasonable opportunity of hearing on remanded issues - Adjudication of Cenvat credit on Transit Insurance and Outward Freight remitted for reconsideration - HELD THAT: - The Tribunal referred to its examination of these aspects in Commissioner of Central Excise, Chennai-II Vs M/s. Lucas TVS Ltd., & Ors. and directed a limited remand to the Adjudicating Authority to examine the aspects set out therein. The Adjudicating Authority is to apply the ratio laid down in that decision and afford the respondent a reasonable opportunity of hearing before passing an appropriate order.

Issue as to Cenvat credit on Transit Insurance and Outward Freight remanded to the Adjudicating Authority for fresh consideration and decision in accordance with the Tribunal's earlier ratio, with opportunity of hearing.

Final Conclusion: Part of the Commissioner (Appeals) order allowing Cenvat credit on Group Medical Insurance and manpower supply services is confirmed and the revenue appeal on those counts is dismissed; the question of Cenvat credit on Transit Insurance and Outward Freight is remanded to the Adjudicating Authority for readjudication in accordance with the Tribunal's earlier ratio, with a reasonable opportunity of hearing.

Classification of removed capital goods as waste and scrap - depreciation under Rule 3(5) of CCR 2004 - transaction value liability under Rule 3(5A) of CCR 2004 - reversal of Cenvat credit on capital goods - treatment of used capital goods on sale

Classification of removed capital goods as waste and scrap - treatment of used capital goods on sale - Whether the JCB machines sold by the assessee were to be treated as waste and scrap so as to attract liability under Rule 3(5A) of CCR 2004. - HELD THAT: - The Tribunal held that the conclusion that the machines became waste and scrap could not be inferred merely from the invoice description 'old and discarded not usable' in the absence of objective or prescribed criteria. The revenue's assumption that long use or the notation on the invoice ipso facto changed the character of the capital goods into waste and scrap was erroneous. The price realised on sale (approximately 40% of the acquisition cost) was not indicative of scrap value (as a residual or scrap value would, by ordinary commercial yardstick, be substantially lower). On these facts the machines were not held to have attained the character of waste and scrap and the applicability of Rule 3(5A) was negatived. [Paras 6]

The removed JCB machines were not waste and scrap; Rule 3(5A) does not apply.

Depreciation under Rule 3(5) of CCR 2004 - reversal of Cenvat credit on capital goods - Whether the assessee was entitled to reversal on the basis of depreciation under Rule 3(5) of CCR 2004 and, having used the machines for 40 quarters, whether 100% depreciation applied. - HELD THAT: - The Tribunal accepted the assessee's factual finding of use for 40 quarters. Under Rule 3(5) depreciation is to be calculated at the prescribed quarterly rate on straight-line basis; multiplied over 40 quarters the depreciation amounted to 100%. Applying this statutory formula to the undisputed duration of use, no Cenvat credit remained recoverable. Consequently, the demand and penalty confirmed on the basis of treating the sale as attracting Rule 3(5A) were set aside insofar as they related to the two machines. [Paras 6]

Assessee entitled to 100% depreciation under Rule 3(5); no Cenvat reversal recoverable on the two JCB machines.

Final Conclusion: The appeal is allowed: the removed JCB machines were not waste or scrap and Rule 3(5A) did not apply; having been used for 40 quarters the assessee is entitled to 100% depreciation under Rule 3(5) of CCR 2004 and the demand and penalty in respect of those two machines are set aside, with consequential benefits to the appellant.

Refund of duty - limitation for refund claims and effect of payment under protest - administrative communication not substituting quasi judicial adjudication - interest on delayed refund and commencement of interest under the deeming provision - deeming fiction in Explanation to the interest provision does not postpone accrual of interest

Refund of duty - limitation for refund claims and effect of payment under protest - administrative communication not substituting quasi judicial adjudication - Validity of the appellant's refund claims and whether they were time barred or precluded by earlier departmental communications. - HELD THAT: - The Court held that a departmental letter warning that remission could not be sought later did not constitute a quasi judicial adjudication and therefore could not extinguish the statutory right to seek refund. The proviso to the limitation provision operates to exclude the one year bar where duty (and interest) has been paid under protest; the authorities below themselves recorded that duty was paid under protest. The Court relied on precedent rejecting the contention that informal protest did not suffice and on the statutory definition of the "relevant date" which treats provisional payments differently. Applying these principles, the Court concluded that the refund claims were not barred by limitation and directed that the refund be processed.

Refund claims were not time barred; the departmental letter did not preclude adjudication and the claims must be allowed.

Interest on delayed refund and commencement of interest under the deeming provision - deeming fiction in Explanation to the interest provision does not postpone accrual of interest - Whether the appellant was entitled to interest on the sanctioned refund and from which date interest would accrue. - HELD THAT: - The Tribunal accepted the appellant's submission and the reasoning in the Supreme Court decision in Ranbaxy that Section 11BB (interest on refund) becomes operative on expiry of three months from the date of receipt of the refund application under Section 11B, and that the Explanation which deems an appellate or court order to be an order under Section 11B does not alter the date from which interest accrues. The factual finding of the sanctioning authority that the refund application (with High Court order) was received on 23.12.2009 and that the refund was sanctioned only on 22.03.2010 was re examined; the Tribunal found that the sanctioning authority's reliance on the deeming provision to postpone the starting date for interest was incorrect and, applying the Ranbaxy principle, held that interest on delayed sanction was payable to the appellant. Consequential relief was granted.

Appellant entitled to interest on delayed refund; appeal allowed with consequential relief.

Final Conclusion: Writ petitions/appeal allowed: the refund claims were held not to be time barred and the Department's administrative communication did not preclude adjudication; interest on the delayed refund was held payable in accordance with the principle that interest under the relevant provision accrues on expiry of three months from receipt of the refund application, and consequential relief was granted.

Penalty under Section 11AC of the Central Excise Act, 1944 and settlement by payment of duty, interest and 25% penalty within 30 days - Penalty under Rule 26 of the Central Excise Rules, 2004 for dealing with excisable goods liable to confiscation - Confiscation with option of redemption by payment of fine - Effect of payment by one person on proceedings against other persons

Penalty under Section 11AC of the Central Excise Act, 1944 and settlement by payment of duty, interest and 25% penalty within 30 days - Confiscation with option of redemption by payment of fine - Appeal by M/s. Skywin Match Industries in respect of duty, interest, redemption fine and penalty which the appellant has paid and does not contest. - HELD THAT: - The Tribunal noted that the appellant had paid the entire duty liability with interest, the redemption fine and 25% of the penalty within 30 days from the Order-in-Original. The appellant did not contest the duty liability and relied on settlement by payment. In these circumstances and in line with the statutory scheme governing imposition and settlement of penalty, the appeal was allowed insofar as the penalty under Section 11AC is concerned, given the appellant's payment and non-contestation of liability. [Paras 6]

Appeal allowed in the terms recorded: penalty under Section 11AC allowed/settled by payment as detailed.

Penalty under Rule 26 of the Central Excise Rules, 2004 for dealing with excisable goods liable to confiscation - Effect of payment by one person on proceedings against other persons - Penalty imposed on M/s. Nancy Traders under Rule 26 was set aside for lack of a finding that the trader had dealt with excisable goods which it knew or had reason to believe were liable to confiscation. - HELD THAT: - The show cause notice alleged that Nancy Traders abetted the offence by procuring non-duty-paid matches and rendering bills as if exempt. However, the Commissioner (Appeals) did not record any finding that Nancy Traders had in fact 'dealt with any excisable goods which he knows or has reason to believe are liable to confiscation'. On the record before the Tribunal there was no material establishing that the second appellant knew or had reason to believe the goods were liable to confiscation. Consequently, the penalty under Rule 26 could not be sustained and was set aside. The Tribunal also noted the submission that duty had been paid by the main appellant, but the decisive reason for setting aside the penalty was the absence of the requisite finding of knowledge or reason to believe. [Paras 7]

Penalty imposed on M/s. Nancy Traders under Rule 26 set aside; appeal allowed with consequential benefit, if any.

Final Conclusion: The appeal of M/s. Skywin Match Industries is allowed insofar as the penalty under Section 11AC is concerned on the basis of payment and non-contestation; the penalty imposed on M/s. Nancy Traders under Rule 26 is set aside for lack of requisite finding of knowledge or reason to believe, and that appeal is allowed with consequential benefit, if any.

Excisability of turnkey supplies - manufacture - new identity, character and use - classification under Note 4 to Section XVI of the Schedule - congregation of machines versus independent component identity - rule of convenience for tariff classification cannot substitute for manufacture

Manufacture - new identity, character and use - excisability of turnkey supplies - Whether the supply, assembly and installation of a system of independently functioning machines as a 'turnkey' project by the respondent amounted to manufacture attracting Central Excise duty. - HELD THAT: - The Tribunal accepted the adjudicating authority's finding, based on the chartered engineer's certificate and reasoning in the impugned order, that the various machines supplied by the respondent were independent, stand-alone equipments capable of functioning separately and retained their individual identity and functions even when assembled for demonstration or for operation in tandem. Applying the settled test that goods manufactured at site are dutiable only if a new article with a distinct identity, character and use emerges, the Tribunal held that no new machine or distinct function emerged from the congregation of such independently operable machines. The Rule of convenience for selecting a dominant equipment for rate determination does not supplant the legal requirement of manufacture. Consequently the activity of supply and assembly was characterised as trading (supply of machines) and not manufacture attracting excise duty. [Paras 11, 61, 62, 63, 64]

The supply, assembly and installation carried out by the respondent did not amount to manufacture and therefore was not exigible to Central Excise duty; the adjudicating order dropping the demand is upheld.

Classification under Note 4 to Section XVI of the Schedule - congregation of machines versus independent component identity - Whether Note 4 to Section XVI (treating a combination of components as a single machine for classification) applied so as to classify the assembled system as an excisable machine under Chapter heading 84.43. - HELD THAT: - The Tribunal examined Note 4 to Section XVI and the manner in which it operates - it applies where individual components are intended to contribute together to a clearly defined function so as to lose their separate identity and result in a distinct machine. The adjudicating authority's findings, accepted by the Tribunal, established that the components continued to retain their separate functions and did not combine to produce a new clearly defined function falling under the said chapter heading. Reliance on Note 4 was therefore misplaced because its underlying condition - loss of individual identity and emergence of a distinct machine/function - was not satisfied. [Paras 7, 8, 9, 62, 63]

Note 4 to Section XVI did not apply; the assembled systems could not be classified as a single excisable machine under Chapter 84.43.

Final Conclusion: The Tribunal upheld the Commissioner's order dropping the demand: the turnkey supply, assembly and installation of independently functioning machines by the respondent did not constitute manufacture nor could they be classified under Note 4 to Section XVI as a single excisable machine; Revenue's appeal is dismissed and the cross-objection disposed of.

Rectification of mistake - error apparent on the face of the record - duty liability based on definitive determination of annual capacity of production - final determination of annual capacity binding on the assessee where not challenged - collateral proceedings

Rectification of mistake - error apparent on the face of the record - Application for rectification of mistake (Review/Recall/Modification) of the Tribunal's order dated 31.12.2015 - HELD THAT: - The Tribunal held that the ROM application was misconceived because it sought to re argue the merits rather than point out a genuine error apparent on the face of the record. The determinative controversy concerned the demand of differential duty predicated on the definitive determination of the plant's annual capacity of production. The appellant did not dispute that the annual capacity had been finally determined by the Jurisdictional Commissioner in March 2000. Given the unchallenged final determination, the Tribunal reasoned that arguments about show cause notices allegedly proceeding from an earlier provisional determination in 1997 were immaterial; where the final determination stands unchallenged before a higher forum, the assessee is obliged to discharge the duty liability in accordance with law. Consequently there was no error on the face of the Tribunal's order requiring rectification and the ROM application could not be used to re open the merits. [Paras 4, 5]

ROM application rejected; no error apparent on the face of the record requiring rectification of the order dated 31.12.2015.

Final Conclusion: The application for rectification of mistake was dismissed because it impermissibly sought rehearing on merits rather than identifying an error apparent on the face of the record; with the final determination of annual capacity in March 2000 not challenged, the appellant was bound to discharge the duty liability and no rectification was warranted.

Input service - definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 - Cenvat credit for services used in sales promotion and marketing - nexus between services and manufacture

Input service - Cenvat credit for services used in sales promotion and marketing - definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004 - Whether service tax paid on hotels and conference services used for auctions of scrap and marketing conferences is allowable as Cenvat credit as an input service - HELD THAT: - The Tribunal examined the definition of input service in Rule 2(l) of the Cenvat Credit Rules, 2004, which expressly includes services used for advertisement or sales promotion and activities relating to business such as marketing. The impugned order itself recorded that the services were availed in connection with auctions of scrap generated during manufacture and in marketing conferences where attendees were provided refreshments and lunch and the bills were raised on the appellants. Applying the statutory definition, the Tribunal held that the services fall within the category of sales promotion/marketing and thereby qualify as input service used by the manufacturer in relation to manufacture of final products. The argument that there was insufficient nexus between services and manufacture was rejected on this basis. [Paras 4]

Credit of service tax on hotel and conference services used for the auctions and marketing conferences is allowable as Cenvat credit since such services qualify as input services under Rule 2(l).

Final Conclusion: The appeal is allowed: the Tribunal directed that service tax credit on hotel and conference services used for auction of scrap and marketing conferences be permitted as input service under the Cenvat Credit Rules, 2004.

Confiscation and redemption fine - penalty under the Central Excise Rules read with Section 11AC - clandestine clearance - unrecorded / unaccounted stock found on search - search and seizure / panchnama timing

Clandestine clearance - unrecorded / unaccounted stock found on search - confiscation and redemption fine - penalty under the Central Excise Rules read with Section 11AC - search and seizure / panchnama timing - Validity of confiscation, redemption fine and penalties imposed for alleged clandestine clearance of unrecorded finished goods - HELD THAT: - Revenue relied on discovery of finished goods not entered in records during a search and treated such unrecorded stock as intended for clandestine clearance, resulting in confiscation, redemption fine and penalties. The panchnama records the Revenue officers' arrival at the factory at 12:05 PM on 01/09/2009 and the departmental calculation used a checkpoint at 14:00 hrs the same day. The appellant's manager stated that 21.498 MTs were manufactured on 01/09/2009 up to 14:00 hrs and that such goods were not yet entered in statutory records because finishing/recording would occur after that time. Given that the production occurred while officers were present and that the unrecorded position arose from contemporaneous manufacture rather than any evidence of deliberate clandestine disposal, there is no substantive proof that the unrecorded goods were intended for clandestine clearance. The Tribunal found the Revenue's assertion unsupported by evidence and, for that reason, held that confiscation and the consequential penalties and redemption fine could not be sustained. [Paras 6]

Findings of clandestine clearance not established; confiscation, redemption fine and penalties set aside and appeal allowed.

Final Conclusion: The Tribunal held that goods manufactured during the search which were unrecorded because production occurred while Revenue officers were present did not constitute proved clandestine clearance; in absence of evidence the confiscation, redemption fine and penalties were not sustained and the appeal was allowed.

Admissibility of Cenvat credit on capital goods where depreciation was claimed and subsequently reversed - Reconciliation with balance sheet to establish reversal of depreciation - Penalty under Section 11AC must correspond to duty determined under Section 11A(1) - Remand for de novo adjudication

Admissibility of Cenvat credit on capital goods where depreciation was claimed and subsequently reversed - Reconciliation with balance sheet to establish reversal of depreciation - Entitlement to Cenvat credit where depreciation on capital goods was claimed but allegedly reversed was not finally adjudicated and is remanded for fresh consideration. - HELD THAT: - The Tribunal found that the Adjudicating Authority did not properly examine whether the depreciation initially claimed by the appellant had in fact been reversed and consequently was not claimed in the balance sheet. The court observed that if the depreciation ultimately is not reflected as claimed in the balance sheet (i.e., it has been effectively reversed), denial of Cenvat credit may not be justified. Because this factual and accounting aspect was not examined, the question of admissibility of the Cenvat credit could not be decided on the record before the Tribunal and requires de novo adjudication by the original authority with specific inquiry into the reversal and its effect on the balance sheet. [Paras 6]

Remand to the original Adjudicating Authority for de novo adjudication on the admissibility of Cenvat credit, examining whether depreciation was reversed and not reflected in the balance sheet.

Penalty under Section 11AC must correspond to duty determined under Section 11A(1) - Remand for de novo adjudication - Imposition of penalty in excess of the duty determined under Section 11A(1) is unsustainable; penalty, if any, must be commensurate with the duty confirmed and is to be re-considered on remand. - HELD THAT: - The Tribunal noted that the adjudication confirmed duty under Section 11A(1) only for a limited amount (as recorded in the order), whereas a substantially larger penalty under Section 11AC was imposed. The Tribunal held that penalty under Section 11AC can only be imposed when duty is determined under Section 11A(1) and must correspond to the duty so determined. Consequently, the penalty imposed above the amount of duty confirmed is not sustainable. The Tribunal directed that any question of penalty be reconsidered by the original authority and, if imposed, be made commensurate with the duty found upon re-adjudication. [Paras 6]

Penalty as imposed is unsustainable to the extent it exceeds the duty determined under Section 11A(1); remand for reconsideration and, if applicable, imposition of a penalty commensurate with the duty confirmed.

Final Conclusion: Appeal disposed of by way of remand: the matter is directed to the original Adjudicating Authority for de novo adjudication on (a) the admissibility of Cenvat credit in light of whether depreciation was reversed and not taken in the balance sheet, and (b) reconsideration and recalculation of any penalty so that any penalty imposed is commensurate with the duty, if any, finally determined.

Appropriation of CENVAT credit - recovery of erroneously availed CENVAT credit - applicability of interest on unutilised CENVAT credit - penalty under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC - speaking order requirement in adjudication

Appropriation of CENVAT credit - recovery of erroneously availed CENVAT credit - applicability of interest on unutilised CENVAT credit - Order-in-Original set aside and matter remanded for fresh adjudication on the question of recovery/appropriation of CENVAT credit and consequential issues including interest. - HELD THAT: - The Tribunal observed that the Order-in-Original contains no findings confirming appropriation of the disputed CENVAT reversal amount. Because the adjudicating order is not a speaking order on the core question of confirmation/appropriation, the ancillary question of whether interest is payable cannot properly be decided. In view of these lacunae the impugned order is set aside insofar as it relates to recovery of regular credit and consequential issues raised by the Revenue, and the matter is remitted for fresh adjudication limited to those points raised in the Revenue's grounds of appeal.

Set aside and remanded for fresh adjudication on recovery/appropriation of CENVAT credit and consequential issues (including interest) for Tax Period 2011-12.

Speaking order requirement in adjudication - penalty under Rule 15(2) of the Cenvat Credit Rules read with Section 11AC - Impugned order held to be non-speaking in respect of confirmation of reversal; cross-objection disposed of. - HELD THAT: - The Tribunal recorded that the Commissioner in the Order-in-Original did not make explicit findings on appropriation of the amount sought to be reversed. That omission renders the order non-speaking for the limited purpose of deciding recovery and related consequences. The Tribunal therefore set aside the impugned order to that extent. The cross-objection was disposed of by the Tribunal in the course of its order.

Impugned order set aside insofar as it fails to record findings on appropriation; cross-objection disposed of.

Final Conclusion: The impugned Order-in-Original is set aside to the extent it fails to record findings on appropriation/recovery of CENVAT credit for 2011-12; the matter is remanded for fresh adjudication limited to the issues raised by the Revenue (including consequential interest), and the cross-objection is disposed of.

Cenvat credit - input service - activity in relation to business - services integrally connected with business - maintenance services

Cenvat credit - input service - maintenance services - activity in relation to business - Entitlement to Cenvat credit on maintenance services of the photocopier installed in the factory - HELD THAT: - The Tribunal found as an admitted fact that the photocopier was installed in the factory and used for factory office work. Applying the definition of input service and the principle that activities which are in relation to the business and integrally connected thereto qualify as input services, the Tribunal held that maintenance of the photocopier is an input service eligible for Cenvat credit. The Tribunal relied on the view of the Hon'ble Bombay High Court in Commissioner of C. Ex. Nagpur v. Ultratech Cement Ltd to the effect that services related to business activities and integrally connected with the business fall within the scope of input services, and found no contrary material to deny credit in the present facts.

Maintenance service of the photocopier used in the factory is an input service and Cenvat credit is allowable.

Cenvat credit - input service - maintenance services - services integrally connected with business - Entitlement to Cenvat credit on maintenance services of cars registered in the appellant's name and used for conveyance of factory staff - HELD THAT: - The Tribunal noted the uncontested facts that the cars were registered in the appellant company's name and were used for factory activity (conveyance of factory staff). Holding that services which are used for the business activity and are integrally connected thereto qualify as input service, the Tribunal concluded that maintenance of such cars falls within the category of activities in relation to the business and thus attracts Cenvat credit. The Tribunal again referred to the reasoning in Ultratech Cement Ltd to support that services relating to business activities are input services and observed that no contrary material was placed before it to sustain the denial of credit by the Commissioner(Appeals).

Maintenance services of the cars used for factory activity are input services and Cenvat credit is allowable.

Final Conclusion: The impugned order denying Cenvat credit is set aside; Cenvat credit is allowed in respect of maintenance services for the photocopier and for the cars used in the factory, as these services qualify as input service being activities in relation to the business.

CENVAT credit - refund claim under Notification No. 27/2012-CE (NT) - debiting CENVAT account - compliance with conditions of the notification - entitlement to refund on fulfillment of conditions - remand for arithmetical verification of refund

Debiting CENVAT account - compliance with conditions of the notification - entitlement to refund on fulfillment of conditions - Whether failure to debit the CENVAT credit account on the date of filing the refund claim, but debiting it on a later date, disentitles the appellant from refund under Notification No. 27/2012-CE (NT). - HELD THAT: - The Tribunal applied its earlier decision in Sandoz Pvt. Ltd. where it was held that mere failure to debit the CENVAT account on the date of filing the refund claim is not a lapse sufficient to deny refund if the conditions prescribed in the notification are subsequently met by debiting the account. On the date the CENVAT account was debited the conditions of the notification were fulfilled and the appellants became entitled to the refund from that date. The impugned rejection rested solely on the ground of non-debit on the filing date; that ground being covered by the Tribunal's precedent, the impugned order was set aside and the appeal allowed. The earlier Sandoz decision remanded the matter for limited verification of arithmetical accuracy of the refund, but in the present order the Tribunal disposed of the appeal by allowing it and setting aside the impugned order in accordance with that precedent.

Impugned order set aside and appeal allowed; appellant entitled to refund as conditions of the notification were met upon subsequent debiting of the CENVAT account.

Final Conclusion: Appeal allowed; order rejecting refund set aside because subsequent debit of the CENVAT account satisfied the conditions of Notification No. 27/2012-CE (NT), entitling the appellant to refund in accordance with the Tribunal's precedent.

Unjust enrichment - refund claim - evidentiary sufficiency of a Chartered Accountant's certificate - requirement to verify passing on of duty - de novo adjudication on remand - personal hearing

Unjust enrichment - refund claim - evidentiary sufficiency of a Chartered Accountant's certificate - requirement to verify passing on of duty - balance sheet as supporting material - de novo adjudication on remand - personal hearing - Whether the matter should be remanded for fresh adjudication to determine unjust enrichment in relation to the refund claim and to permit verification of documents such as the balance sheet. - HELD THAT: - The original adjudicating authority did not examine the issue of unjust enrichment. Before the Commissioner (Appeals) the appellant produced a Chartered Accountant's certificate certifying that the incidence of duty was not passed on to customers or others. The Commissioner (Appeals) concluded that the appellant had not established non-passing on the ground that documents such as the balance sheet were not produced, but did not ask the appellant to produce such documents before deciding the appeal. In these circumstances the tribunal held that the absence of any verification of the balance sheet by either authority made it necessary to remit the matter. The tribunal directed that the original authority must undertake a de novo adjudication, consider documentary evidence including the balance sheet and any other material the appellant furnishes, afford the appellant personal hearing, and complete the adjudication within three months of receipt of the order.

Impugned order set aside and matter remitted to the original adjudicating authority for de novo adjudication on the issue of unjust enrichment, with directions to consider documents such as the balance sheet, grant personal hearing, and conclude the proceedings within three months.

Final Conclusion: Appeal disposed of by remand: the impugned order is set aside and the case is remitted for fresh adjudication on unjust enrichment with opportunity to produce supporting documents and to be heard, to be completed within three months.

Cenvat credit reversal on capital goods cleared after use - Proviso to Rule 3(5) of the Cenvat Credit Rules, 2004 - reduction of 2.5% per quarter - Remand for re-quantification of duty liability - Penalty under Rule 25 of the Central Excise Rules - imposability

Cenvat credit reversal on capital goods cleared after use - Proviso to Rule 3(5) of the Cenvat Credit Rules, 2004 - reduction of 2.5% per quarter - Remand for re-quantification of duty liability - Admissibility and quantification of duty demand in respect of capital goods (rollers/cylinders) cleared after use in light of the amended proviso to Rule 3 of the Cenvat Credit Rules, 2004 - HELD THAT: - The period in dispute falls after the amendment effected by Notification No.39/07-CE(NT) dated 13/11/2007. Under the amended provision the duty liability on capital goods cleared after use is to be quantified by allowing a reduction of 2.5% for each quarter. The Tribunal found no reason to withhold application of this amended proviso to the appellant and observed that the reduction could be allowed without additional information from the appellant. Consequently the matter is remitted to the Adjudicating Authority for re-quantification of the demand following the proviso to Rule 3(5) of the Cenvat Credit Rules, 2004.

Remand to the Adjudicating Authority to re-quantify the duty demand in accordance with the proviso to Rule 3(5) of the Cenvat Credit Rules, 2004 (applying 2.5% reduction per quarter).

Penalty under Rule 25 of the Central Excise Rules - imposability - Whether penalty under Rule 25 is imposable in the circumstances of the case - HELD THAT: - The Tribunal noted that prior to 13/11/2007 the legal position on duty liability for removal of capital goods was contentious and there were judicial decisions favouring the assessee where no provision for payment of duty on removal of capital goods existed. Considering this contemporaneous legal uncertainty and the facts of the case, the Tribunal concluded that imposition of penalty was not justified.

Penalty under Rule 25 is waived.

Final Conclusion: The appeal is disposed by remitting the matter to the Adjudicating Authority for re-quantification of the duty liability applying the proviso to Rule 3(5) of the Cenvat Credit Rules, 2004; the penalty previously imposed under Rule 25 is waived.

Purchase tax under Section 4(6)(iii) - Exim Scrips as goods - agency of Reserve Bank of India - surrender/cancellation versus purchase - definition of business and dealer - intention to extinguish marketability as determinative

Purchase tax under Section 4(6)(iii) - agency of Reserve Bank of India - surrender/cancellation versus purchase - State Bank of India was not liable to pay purchase tax for accepting Exim scrips under the RBI scheme of March 1992. - HELD THAT: - The Court held that, on the facts, the SBI acted as agent of the Reserve Bank of India in acquiring Exim scrips pursuant to the RBI directions and that the purpose of the scheme was to have the scrips cancelled and removed from the market. The scheme authorised designated SBI branches to receive scrips, pay a premium and forward the scrips for cancellation; reimbursement and commission arrangements confirmed SBI's role as agent. Where the principal objective is to extinguish the marketability of the instrument and not to acquire marketable goods for use or resale, the transactions do not constitute purchases attracting purchase tax under Section 4(6)(iii). Applying this factual and legal analysis, the Court concluded that the SBI did not acquire ownership of marketable goods in the transaction and therefore was not exigible to purchase tax. [Paras 33, 34, 35]

Appeal dismissed: SBI not liable to purchase tax for the RBI-directed mop-up and cancellation of Exim scrips.

Exim Scrips as goods - definition of business and dealer - intention to extinguish marketability as determinative - Replenishment licences/Exim scrips are generally 'goods', but where they are returned to the grantor for cancellation and destruction the acquiring entity does not thereby acquire marketable goods. - HELD THAT: - The Court reaffirmed the principle in Vikas Sales Corporation that REP licences/Exim scrips, by virtue of possessing intrinsic market value and being freely tradable, fall within the statutory concept of 'goods'. It also surveyed subsequent authorities (including Sunrise Associates and Yasha Overseas) to clarify that those decisions did not negate the independent basis on which replenishment licences are goods. However, the Court distinguished the present factual matrix: when the State (through RBI) directs acquisition only for cancellation and removal from the market, the instrument ceases to be a marketable commodity for the acquiring agent. Accordingly, the mere characterisation of Exim scrips as 'goods' in general does not compel the imposition of purchase tax where the transaction's object is extinguishment of the licence and no transfer of marketable ownership to the acquirer takes place. [Paras 31, 32, 33]

Exim scrips are goods in general, but the RBI-directed returns for cancellation did not convert SBI's receipt of scrips into acquisition of marketable goods liable to purchase tax.

Final Conclusion: On the facts of the March-May 1992 mop-up scheme, the State Bank of India acted as agent of the Reserve Bank of India to procure Exim scrips for cancellation and not to acquire marketable goods; accordingly, the bank was not liable to purchase tax under the Bengal Finance (Sales Tax) Act, 1941, and the appeal is dismissed.

Pre-deposit - jurisdiction to decide on merits when first appeal dismissed for non-deposit of pre-deposit - remand for consideration limited to pre-deposit - duty to refrain where higher forum (High Court) is seized of identical question

Pre-deposit - jurisdiction to decide on merits when first appeal dismissed for non-deposit of pre-deposit - remand for consideration limited to pre-deposit - Whether the Tribunal ought to have decided the appeal on merits notwithstanding that the first appellate authority dismissed the appeal for non-deposit of pre-deposit, and whether the Tribunal's merits decision must be set aside and remitted to decide only the issue of pre-deposit. - HELD THAT: - The first appellate authority had dismissed the assessee's appeal solely on the ground of non-deposit of the requisite pre-deposit. The Tribunal nevertheless proceeded to decide the appeal on merits. Reliance is placed on the decision of the Supreme Court in Smithkline Beecham Company Holding Ltd. and on a Division Bench decision of this Court, which establish that where an appeal to the Tribunal is against an order dismissing the first appeal for non-deposit, the Tribunal's jurisdiction is confined to the question of pre-deposit and it ought not to adjudicate the substantive merits. Further, when the High Court is seized of identical questions, the Tribunal should have refrained from pronouncing on merits and, if necessary, stayed proceedings until the High Court determines the point. In view of these principles and the undisputed factual position that the first appellate order was one of dismissal for non-deposit, the Tribunal's merits decision cannot be sustained and requires quashing and remand for determination limited to the legality and validity of the first appellate authority's order on the pre-deposit point. [Paras 3, 5, 6, 8, 9]

The Tribunal's judgment deciding the appeal on merits is quashed and set aside; the matter is remitted to the Tribunal to decide only the issue of pre-deposit and the legality of the first appellate authority's order dismissing the appeal for non-deposit, in accordance with law.

Duty to refrain where higher forum (High Court) is seized of identical question - Whether the Tribunal should have refrained from deciding the merits when the High Court was seized of a similar question. - HELD THAT: - The Court observed that the Tribunal was informed that the High Court had been seized of identical legal questions in another appeal and that the Tribunal's contrary view was at large before the High Court. Under such circumstances the proper course would have been for the Tribunal to stay its hand and not decide the contested legal question on merits until the High Court's determination. The Tribunal's failure to do so was improper and reinforces the need to quash its merits decision and remit the matter for consideration limited to pre-deposit. [Paras 4, 7, 8]

The Tribunal ought to have refrained from adjudicating the merits while the High Court was seized of the same question; this reinforces quashing of the merits decision and remand to decide only the pre-deposit issue.

Final Conclusion: The appeal is partly allowed: the Tribunal's order deciding the appeal on merits is quashed and set aside, and the matter is remitted to the Tribunal to determine, in accordance with law, only the issue of pre-deposit and the validity of the first appellate authority's dismissal for non-deposit; no opinion is expressed on the merits.

Best judgment assessment - burden of proof for job work and repair receipts - addition to turnover on basis of gross profit rate - determination of unaccounted purchases - concurrent findings of fact - requirement of inquiry from third parties where receipts are by cheque

Concurrent findings of fact - burden of proof for job work and repair receipts - requirement of inquiry from third parties where receipts are by cheque - Whether the Tribunal rightly set aside the finding of the appellate authority without assigning any reasons when repair and job work receipts supported by repair charges bills/vouchers and reflected in ledger and payment received were produced by the assessee, and whether the assessment order restoring additions was correct. - HELD THAT: - The Court upheld the concurrent finding that the assessee's primary business is manufacture and sale of furniture, noting the assessee had admitted manufacture, repair and job work. The assessee proved receipts of repair charges of Rs. 9,900 from two agencies by cheque and produced supporting material; the Assessing Officer had not made any inquiry of those agencies. The Court held that receipts proved by cheque cannot be doubted without making the available inquiries, and therefore additions to turnover attributable to those proved repair receipts were unjustified. However, as to the remainder of alleged repair and job work receipts, the assessee failed to produce particulars and supporting documents before the authorities; in that absence the Tribunal's finding treating undisclosed job-work receipts as not acceptable was sustainable. On this basis the Tribunal's restoration of the assessment was partly incorrect to the extent it treated proved repair receipts as suspect, but was justified in rejecting unproven job-work claims.

Assessee's proved repair receipts (Rs. 9,900) could not be disbelieved without inquiry; Tribunal's finding that assessee engaged in manufacture and sale stands; additions based on the proved receipts were unjustified, while rejection of unproven job-work claims was sustained.

Addition to turnover on basis of gross profit rate - best judgment assessment - Whether the Tribunal was justified in assessing evaded extra purchases of Rs. 15,00,000 and evaded extra sale of Rs. 25,00,000 when the basis of rejection of accounts pertained to job work and repairing charges only, and whether the gross profit rate applied by the Tribunal was arbitrary. - HELD THAT: - The Court found that the gross profit rate adopted by the Tribunal to compute evaded sales turnover from the profit shown by the assessee for job work and remaining repairs was not arbitrary. The Tribunal had recorded that the assessee showed entire job-work receipts in cash without particulars of parties or nature of job work, and had not produced relevant documents despite queries; therefore treating such profit as arising from taxable manufacture and sale was open to the Tribunal. Conversely, the Court held there was no material to sustain the Assessing Officer's separate determination of unaccounted purchases beyond the materials the assessee himself said were used in job work/repairs. Consequently the gross profit-based determination of evaded sales was upheld subject to adjustment for proved repair receipts.

Tribunal's use of a gross profit rate to determine evaded sales from unproved job-work/repair receipts was sustainable; the computation was upheld but adjusted for proved receipts.

Determination of unaccounted purchases - concurrent findings of fact - Whether the Tribunal rightly restored evaded sale at Rs. 25,00,000 and evaded purchase at Rs. 15,00,000 without setting aside the finding of the Appellate Authority and without considering assessment orders for other years. - HELD THAT: - The Court found no material to support the Assessing Officer's finding of additional unaccounted purchases of Rs. 15 lacs beyond materials the assessee had disclosed as used in job work and repairs. The Assessing Officer himself recorded that the materials shown were usable in manufacture and that the assessee admitted remaining material was used in job work/repair, so use of those materials in manufacture was undisputed. As the dispute related only to characterization (job work/repair v. manufacture and sale) and the assessee's claim of job work/repairs (except the proved Rs. 9,900) was rejected, there was no basis for separately determining further unaccounted purchases. Accordingly the Court set aside the addition in respect of unaccounted purchases but left the evaded sales computation largely intact subject to a proportional reduction.

Unaccounted purchases of Rs. 15 lacs as determined by the Assessing Officer and upheld by the Tribunal are set aside for lack of material; evaded sales are reduced proportionately for proved repair receipts.

Final Conclusion: Revisions partly allowed. The Tribunal's treatment of unproven job-work receipts as taxable sales and its use of a gross profit rate is sustained; proved repair receipts (Rs. 9,900) cannot be disbelieved without inquiry and warrant reduction of the addition. Unaccounted purchases determined by the Assessing Officer (Rs. 15 lacs) are set aside and the evaded sales turnover is reduced by Rs. one lac accordingly.

Remand for fresh assessment - determination of turnover on suppressed purchases - power to enhance turnover under Section 9 - concurrent findings of fact - opportunity to the assessee to lead evidence

Determination of turnover on suppressed purchases - concurrent findings of fact - Whether the Tribunal was legally justified in remanding the matter to the assessing officer for fresh determination of turnover arising from alleged suppressed purchases, notwithstanding that the First Appellate Authority had made an addition in turnover. - HELD THAT: - The Tribunal's remand was founded on the assessing authority's report that applied the ratio of waste-paper consumed to final craft-paper production, resulting in an asserted evaded manufacture and turnover. The First Appellate Authority had not determined the quantity of final product attributable to the undisclosed purchases but made an ad-hoc monetary addition. Given that the assessing officer's report and the question of quantification involved disputed factual contentions and that concurrent findings of suppressed Ex U.P. purchases were recorded, the Tribunal correctly held that the assessing officer was best placed to consider the evidence, apply the ratio, and redetermine manufacture and sales. The High Court found no infirmity in remanding the matter so that a speaking and reasoned assessment may be framed after providing the assessee opportunity to meet the report and lead evidence.

Remand to the assessing officer for fresh determination of manufacture and turnover upheld; Tribunal's remand was justified and lawful.

Remand for fresh assessment - opportunity to the assessee to lead evidence - power to enhance turnover under Section 9 - Whether the Tribunal erred in remanding the matter where all material was on record and no further inquiry was required. - HELD THAT: - Although material was placed before appellate fora, the First Appellate Authority did not make a factual determination of the quantity of final product arising from the disputed raw-material purchases and instead made a lump-sum addition. The assessing officer had statutory powers under Section 9 to enhance turnover and had filed a detailed report quantifying alleged evaded production; the assessee disputed the basis of that report. In these circumstances, the Tribunal's decision to remand so that the assessing officer could examine the evidence, allow the assessee to lead further evidence if necessary, and pass a speaking order was appropriate. The High Court concluded that remand was warranted rather than deciding the disputed factual quantification itself.

Tribunal rightly remanded the matter for redetermination; remand does not amount to error where disputed facts and need for evidence-led inquiry exist.

Final Conclusion: Revisions dismissed; Tribunal's order remanding assessment to the assessing officer is upheld and the assessing officer is directed to pass speaking, reasoned orders after considering the assessee's replies and evidence; the Court has not expressed any opinion on substantive determination of evaded production or turnover.